Utilities are acting once more like the new mo-mo stocks. Look what just set a post-financial crisis high today, closing on its high and thus moving up as the market rallied into the close:
http://finance.yahoo.com/echarts?s=AVA+Interactive#symbol=ava;range=20040621,20120628;compare=;indicator=sma%2850,150,200%29+volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;
It's a small northwestern utility with a P/E that's "cheap"- under 17 LOL. But the payout is 4.4% and people want that good stuff. Meanwhile P/E's on techs are shrinking and P/E's on a growing number of energy companies are less than 10X TTM.
One factor that actually makes sense in this rush for seemingly secure dividends w/o regard for growth is the tax treatment of foreign earnings. The foreign earnings of all multi-nationals is not able to be paid out to shareholders as dividends until they come back to the U.S. and get taxed. Thus a dollar of domestic earnings are worth somewhat more than a dollar of foreign earnings. That issue notwithstanding, the fact is that utility earnings are not necessarily predictable. Therefore their dividends are not necessarily secure either. I have a massively overweight position in utilities in my IRAs. Avista is one of them. VVC, Vectren is another. The charts are in break-out positions and unlike the new premature faves, the homebuilders, they actually have investment merits in the here and now. The homebuilders will have their day in the sun, but I think they are ahead of themselves. As was the case with gold and silver in 2009-11, sound domestic electric and natural gas utilities look as though they have more room to run on the upside as investors are increasingly reaching for income. Con Ed is at $62. I think $75 is realistic as the months roll by. Unfortunately Cramer feels the same way, but I've been saying so for awhile. He does, after all, get some mo-mo stuff right now and then...
Showing posts with label dividends. Show all posts
Showing posts with label dividends. Show all posts
Thursday, June 28, 2012
Monday, June 11, 2012
Turnaround Monday- Didn't Wait for Tuesday
As was strongly suggested on yesterday's post, today the European and U.S. stock markets staged what looks to be a major intra-day reversal, both in Europe and here. Spanish and Italian govvies were clobbered. The SPY closed below its 150 day sma once again, and has a 10 week pattern now of lower highs since the April 2 high. Lower lows coming soon to a stock market near you would be highly unsurprising.
I am long a variety of utilities because of my favorite reason to buy/own stocks: income in a world starved for seemingly secure income; and technicals. These include ED, AVA, SWX, WGL, XLU. Note these have replaced my zero-coupon Treasuries, on which I took profits the week before last, and now I am increasingly ramping into the utilities as a preferred income and price appreciation play. Today's drop in interest rates is perfect for this thesis. My expectation is that utilities will suffer profit-taking on days like today but then go up a nice amount when we have days as we did last week when stocks rebound and rates go up. I'm banking on some resumption of the historical relationship between the 10 year T-note and utility yields. Some utes could go up 50%++ if that occurred near today's record-low T-yields. (Not counting on that!)
I also own a few of the small community S&Ls/bank stocks I have mentioned for quite some time on The Daily Capitalist. I prefer not to name them b/c they are so illiquid. Finally, I own a very modest amount of stocks with varying charts that are "normal" operating companies, are ultra-high quality, have the leading position in essential growth industries, and have TTM P/Es of 7-14. In general, they all are GARP stocks that are well off their highs but with record earnings, and all pay dividends and have substantial tangible book value.
I am also long a significant amount of some of the leveraged closed end tax-exempt bond funds, the largest holdings being NIO and NVG.
I see investors turning away from the SPY until it yields double the 10-year Treasury. This process takes time. That's how it ended up in Japan, with a 1% 10-year JGB and a 2% Nikkei yield. In the US in the 1940s, the market had periods where the highest-quality stocks yielded 7-9% with T-bond yields marginally higher than today's.
Once people really start worrying about stocks, a 2% SPY yield is trivial. They can go out for lunch and come back to find the SPY down that much, just like that. Thus we saw the psychology to get high dividends- and note back in the '40s, stocks often traded close to tangible book value, which as the decade drew to an end got to be understated due to inflation. I expect the lust for high dividend income is likely to return. For now, utilities with seemingly secure dividends are the best way I see to make investment lemonade out of today's ZIRP-era lemons.
I also took very small trading profits on GTU, having bought it late last week at a zero premium to NAV, selling it today with bullion a little below where it was when I purchased GTU but the premium to NAV had rised to 3+%. Every little bit helps. GTU does not fit the income theme! With oil turning to the downside today, I don't want more than a core gold holding, the trend being your friend and all that.
I am long a variety of utilities because of my favorite reason to buy/own stocks: income in a world starved for seemingly secure income; and technicals. These include ED, AVA, SWX, WGL, XLU. Note these have replaced my zero-coupon Treasuries, on which I took profits the week before last, and now I am increasingly ramping into the utilities as a preferred income and price appreciation play. Today's drop in interest rates is perfect for this thesis. My expectation is that utilities will suffer profit-taking on days like today but then go up a nice amount when we have days as we did last week when stocks rebound and rates go up. I'm banking on some resumption of the historical relationship between the 10 year T-note and utility yields. Some utes could go up 50%++ if that occurred near today's record-low T-yields. (Not counting on that!)
I also own a few of the small community S&Ls/bank stocks I have mentioned for quite some time on The Daily Capitalist. I prefer not to name them b/c they are so illiquid. Finally, I own a very modest amount of stocks with varying charts that are "normal" operating companies, are ultra-high quality, have the leading position in essential growth industries, and have TTM P/Es of 7-14. In general, they all are GARP stocks that are well off their highs but with record earnings, and all pay dividends and have substantial tangible book value.
I am also long a significant amount of some of the leveraged closed end tax-exempt bond funds, the largest holdings being NIO and NVG.
I see investors turning away from the SPY until it yields double the 10-year Treasury. This process takes time. That's how it ended up in Japan, with a 1% 10-year JGB and a 2% Nikkei yield. In the US in the 1940s, the market had periods where the highest-quality stocks yielded 7-9% with T-bond yields marginally higher than today's.
Once people really start worrying about stocks, a 2% SPY yield is trivial. They can go out for lunch and come back to find the SPY down that much, just like that. Thus we saw the psychology to get high dividends- and note back in the '40s, stocks often traded close to tangible book value, which as the decade drew to an end got to be understated due to inflation. I expect the lust for high dividend income is likely to return. For now, utilities with seemingly secure dividends are the best way I see to make investment lemonade out of today's ZIRP-era lemons.
I also took very small trading profits on GTU, having bought it late last week at a zero premium to NAV, selling it today with bullion a little below where it was when I purchased GTU but the premium to NAV had rised to 3+%. Every little bit helps. GTU does not fit the income theme! With oil turning to the downside today, I don't want more than a core gold holding, the trend being your friend and all that.
Wednesday, January 13, 2010
Time for High Quality Stocks as Economic Pessimism Persists?
The ABC News Consumer Index was released yesterday, and showed a sharp drop in confidence, with noticeable declines in "buying climate" and personal finances.
The news release is in PDF format and cannot be cut and pasted to this blog. Please click on the link and examine the graph on page 3. The obvious pattern is that the pattern of consumer confidence from the immediate pre-recession year to the end of recession (or depression) is so far looking just like that of the first of America's so-called jobless recoveries in the early 1990s. We know how that story ended, with the employment and investment boom of the late '90s.
What are the chances that the economy and the public mood will soar throughout this decade as it did in the '90s?
The main differences between then and now are that then there was the victory over the USSR with the coda of a smashing victory over Saddam Hussein in a war paid for by creditor nations such as Japan and Saudi Arabia.
At home, there was the aftermath of the S&L mess, but public confidence had not been shaken as fundamentally as now.
Team Obama may be not only talking the deficit reduction talk, but if healthcare reform goes through as planned, there will be up-front taxes, and there may be taxes/fees on the financial industry following the bailout. Meanwhile, the yield curve is as wide in absolute terms as it was at the end of 1992. Treasury yields plummeted shortly thereafter and the stock market, which had moved up sharply from its 1990-91 bottom, didn't stop for years. So perhaps some gloom about Federal improvidence might lift at least a bit (we can hope, can't we?).
The Conference Board Leading Economic Indicator has now exceeded its prior high level of mid-2007. (ECRI's equivalent indicator has not set an all-time high but is at a post-downturn new high.) Dr. Goldstein of the Conference Board stated this month: "The indicators point to a bright new year."
Because my own immediate reaction to that statement is to doubt it, and as the confidence numbers show, I am hardly alone, it's important to recognize that circumstances do change. We have the S&P 500 roughly a quarter off its high while the leading indicators used by the Conference Board are at a record. Could undue pessimism be embedded in certain stocks?
I am thinking that this could well be so, considering the meager alternatives for financial assets.
High-quality stocks share in the abundant systemic risk, but so much hot money has flowed into the speculative stuff that was beaten down a year ago that it could be that the average stock goes down while the Chubbs, Tevas, TJXs, and Oracles of the world trend up a bit and perhaps more than a bit. Unlike Federal and municipal debt, and is more or less the case with gold, there is no new supply of stock in these enterprises hitting the market for now, so oversupply is not the issue. Overvalued though the overall stock market is by many fundamental criteria, cheap short money rates and supply-demand characteristics can add to reasonable P/E's and dividends equaling or exceeding returns on cash or 2-3 year money may make high quality equities good investment vehicles in the months and years ahead even if they are swimming with overvalued lower quality shares.
Those such as yours truly who compare the U. S. to Japan post-bubble bursting should note that Japan's stock market was at its peak more overvalued than ours at its peak and kept hitting what now look like frothy levels for many years thereafter.
Cash is trash, Uncle Sam is a beggar, double-dip and systemic fears (if indeed the downturn is even truly over) abound, China may explode or implode, etc., and high-quality stocks have grievously underperformed the market. And unlike gold they even pay you to hold them. Might this be their time in the sun?
As more and more of them break out to all-time price highs with reasonable to low P/E's and charts that show a strong base, the case for that grows, just as it did with gold last summer, which surged over 15% in almost no time after it exceeded its prior high price of 2008,
Copyright (C) Long Lake LLC 2010
The news release is in PDF format and cannot be cut and pasted to this blog. Please click on the link and examine the graph on page 3. The obvious pattern is that the pattern of consumer confidence from the immediate pre-recession year to the end of recession (or depression) is so far looking just like that of the first of America's so-called jobless recoveries in the early 1990s. We know how that story ended, with the employment and investment boom of the late '90s.
What are the chances that the economy and the public mood will soar throughout this decade as it did in the '90s?
The main differences between then and now are that then there was the victory over the USSR with the coda of a smashing victory over Saddam Hussein in a war paid for by creditor nations such as Japan and Saudi Arabia.
At home, there was the aftermath of the S&L mess, but public confidence had not been shaken as fundamentally as now.
Team Obama may be not only talking the deficit reduction talk, but if healthcare reform goes through as planned, there will be up-front taxes, and there may be taxes/fees on the financial industry following the bailout. Meanwhile, the yield curve is as wide in absolute terms as it was at the end of 1992. Treasury yields plummeted shortly thereafter and the stock market, which had moved up sharply from its 1990-91 bottom, didn't stop for years. So perhaps some gloom about Federal improvidence might lift at least a bit (we can hope, can't we?).
The Conference Board Leading Economic Indicator has now exceeded its prior high level of mid-2007. (ECRI's equivalent indicator has not set an all-time high but is at a post-downturn new high.) Dr. Goldstein of the Conference Board stated this month: "The indicators point to a bright new year."
Because my own immediate reaction to that statement is to doubt it, and as the confidence numbers show, I am hardly alone, it's important to recognize that circumstances do change. We have the S&P 500 roughly a quarter off its high while the leading indicators used by the Conference Board are at a record. Could undue pessimism be embedded in certain stocks?
I am thinking that this could well be so, considering the meager alternatives for financial assets.
High-quality stocks share in the abundant systemic risk, but so much hot money has flowed into the speculative stuff that was beaten down a year ago that it could be that the average stock goes down while the Chubbs, Tevas, TJXs, and Oracles of the world trend up a bit and perhaps more than a bit. Unlike Federal and municipal debt, and is more or less the case with gold, there is no new supply of stock in these enterprises hitting the market for now, so oversupply is not the issue. Overvalued though the overall stock market is by many fundamental criteria, cheap short money rates and supply-demand characteristics can add to reasonable P/E's and dividends equaling or exceeding returns on cash or 2-3 year money may make high quality equities good investment vehicles in the months and years ahead even if they are swimming with overvalued lower quality shares.
Those such as yours truly who compare the U. S. to Japan post-bubble bursting should note that Japan's stock market was at its peak more overvalued than ours at its peak and kept hitting what now look like frothy levels for many years thereafter.
Cash is trash, Uncle Sam is a beggar, double-dip and systemic fears (if indeed the downturn is even truly over) abound, China may explode or implode, etc., and high-quality stocks have grievously underperformed the market. And unlike gold they even pay you to hold them. Might this be their time in the sun?
As more and more of them break out to all-time price highs with reasonable to low P/E's and charts that show a strong base, the case for that grows, just as it did with gold last summer, which surged over 15% in almost no time after it exceeded its prior high price of 2008,
Copyright (C) Long Lake LLC 2010
Tuesday, December 22, 2009
Dividend Matters
In this speculative set of markets, it's nice to see a reasoned discussion of dividends as in the linked Business Week article. In the early stages of the Great Depression, dividends were high single digits. Now the S&P 500 yields about 2% (exact rate depends on how you measure the yield of 500 stocks weighted by float.)
My basic take is that if we are years away from surpassing the total dividend payout set at peak, it is anyone's wild guess as to what competing interest rates will be, what P/E's will be, etc.
People such as David Kotok of Cumberland Advisors who have been quite right this year to be long continue to be long, citing liquidity and absence of labor cost pressures. So, sales should rise and margins should be strong.
The novel problem is the eerieness of 0% interest rates, which are occurring allegedly because there is still a financial crisis going on. Meanwhile, the rest of the financial community is partying. What is this liquidity then other than leverage similar to that which ultimately imploded the system a year ago? Will stocks double so that the dividend yield on the SPY is only 1%, but that still is as good as cash? Will the trick for the next bear market be that stocks peak well before the Fed truly tightens?
Stay tuned. Whether it's a Ginnie Mae, a 10-year Treasury, or even Teva yielding 1.1% or ownership of GLD or SLV with covered call selling, investors should focus on income precisely because most of the media are not doing so.
Copyright (C) Long Lake LLC 2009
My basic take is that if we are years away from surpassing the total dividend payout set at peak, it is anyone's wild guess as to what competing interest rates will be, what P/E's will be, etc.
People such as David Kotok of Cumberland Advisors who have been quite right this year to be long continue to be long, citing liquidity and absence of labor cost pressures. So, sales should rise and margins should be strong.
The novel problem is the eerieness of 0% interest rates, which are occurring allegedly because there is still a financial crisis going on. Meanwhile, the rest of the financial community is partying. What is this liquidity then other than leverage similar to that which ultimately imploded the system a year ago? Will stocks double so that the dividend yield on the SPY is only 1%, but that still is as good as cash? Will the trick for the next bear market be that stocks peak well before the Fed truly tightens?
Stay tuned. Whether it's a Ginnie Mae, a 10-year Treasury, or even Teva yielding 1.1% or ownership of GLD or SLV with covered call selling, investors should focus on income precisely because most of the media are not doing so.
Copyright (C) Long Lake LLC 2009
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